Several years ago, shippers were involved in hundreds of lawsuits with motor carriers that promised huge discounts to shippers, but never actually filed those discount rates with federal regulators. The problem began when those same motor carriers went out of business, which was a common occurrence in the early days of deregulation. The bankruptcy trustees would then file lawsuits against the shippers to collect the difference between the discounted rates offered, (but never properly published and filed), and the higher rates they said should be applicable. To add insult to injury, the bankruptcy trustees sought these balance due charges going back a minimum of three years. The sad fact is that shippers paid back hundreds of millions of dollars to motor carrier bankruptcy trustees over the years.
Well, the good news today is that there is no longer a requirement for most motor carriers to file their rates, charges and discounts with federal or state regulators. The bad news however is that many shippers still believe the Federal Government sets motor carrier rate levels, (especially fuel surcharges), and that all motor carrier rates are standard. That’s why shippers will usually select a motor carrier to transport their shipments based solely on the discounts the carriers offer. We are here to tell you there is no such thing as a “standard” when it comes to motor carrier rates and charges.
Today we have a proliferation of independently published freight rate structures. These rates and charges vary carrier by carrier and so do their charges for accessorial fees, (including fuel surcharges) as well as their discount percentages. In addition, many motor carriers limit their liability for claims when merchandise is lost or damaged. But, those limitations usually are not known until the shipper has to file a claim. At that point it’s too late to do anything about it.
These factors place a great burden on shippers as they must have a complete understanding of the carriers’ rates, rules, regulations and liability limitations BEFORE they tender any freight to the carriers; Perhaps its time for a “truth in rates” document to be offered by the freight carriers. Don’t hold your breath!
It is not our intention to imply that freight carriers are trying to deceive shippers about their rates and liability standards, but rather that it’s the responsibility of the SHIPPER to have a complete understanding of the carriers rates and liability limitations BEFORE they tender any freight to the carriers.
To show the potential negative impact shippers can be subject to, the following is an actual case study and points out the pitfalls that can financially harm a company if it is working in the dark.
One of our clients negotiated discounts with five different motor carriers transporting its products from their Midwest distribution center in Chicago. It was their intention to enter into contract agreements with all five carriers since the discount percentages offered by the carriers were within a few percentage points of each other. Our advice to our client….. Allow us to perform a Benchmark Analysis of all of the carriers’ “net” freight charges to see how they really stack up before signing any long term carrier contracts.
Needless to say our client was extremely happy with our advice and here’s why. Our Benchmark Analysis was quite revealing, (as we knew it would be). Once we created the benchmark rates we believed the client should be paying based on their shipping activity, we measured each carrier’s proposed rates, discounts and fuel surcharges to see just how close, or far apart they would be in comparison to the benchmark. The results of our analysis indicated the following variances:
Carrier #1 20% higher than the benchmark
Carrier #2 42% higher than the benchmark
Carrier #3 1% higher than the benchmark
Carrier #4 10% higher than the benchmark
Carrier #5 3% LOWER than the benchmark
The analysis proved our suspicions that the proposed rates, discounts and fuel surcharges offered by the five different motor carriers were meaningless unless they were properly evaluated. The shipper and certainly the motor carriers had not clearly established where the shipper’s rates should be set based on our clients shipping characteristics, lanes of traffic, volume and regularity of shipments, loading and unloading requirements, freight claims susceptibility, freight payment timeframes, etc.
So while shippers have a wide range of motor carriers to choose from these days, it is quite clear that many shippers will be lulled into a false sense of security if they merely select carriers based on the discounts being offered. As anyone can see, true savings are possible when the transportation to be offered is properly analyzed, benchmarked and properly presented to the carriers. These benchmark analyses by the way, are heavily valued by the motor carriers as they tell the true story of a shippers business. They provide the necessary tools the carriers need to clearly establish the level of rates they can and should offer.
By the way, the same circumstances apply for parcel carriers, as well as ocean and air carriers. No company should go into any carrier rate negotiation process with blinders on. Seek the advice of “experts” to help you better understand where your freight rates should be set, rather than blindly accepting freight rate levels offered by the freight carriers.